Background materials for a new Multiannual Financial Framework

Seven years have passed

If everything goes according to plan, the President of the European Commission, Ursula von der Leyen, will present to the College of Commissioners, on July 16, the "Package of the Multiannual Financial Framework post 2027". According to the best informed sources, this package will include the legislative proposals for the reform of the Common Agricultural Policy (CAP). It will have been exactly seven years, two months and two weeks, since, on May 2, 2018, the Multiannual Financial Framework 2021 - 2027 was presented, in a similar event.

The Multiannual Financial Framework (MFF) is approved for a minimum period of 5 years, through a special legislative procedure that requires the unanimity of the Council of the European Union and the approval of the European Parliament, which does not act as co-legislator, i.e. its role is one of approval (or rejection), but not of amendment, although, as it did in previous negotiations, it will submit its own proposal to try to influence the negotiations.

Normally, the approval of an MFF requires several meetings of heads of state and government in the European Council. The last meeting, where the agreement is finally concluded, usually takes place after a long lockdown in the Europa building (or in the adjoining Justus Lipsius building) located in the "street of law" in Brussels. 

As an example, take the European Council summit held from July 17-21, 2020, where the MFF 2021-2027 and the Next Generation EU recovery instrument were approved. The meeting stretched over five days until all member states were able to reach an agreement, making it one of the longest in the history of the European Union. Then, first Brexit and after the post-Covid economic recovery took center stage in the negotiations.

What we know so far about the post-2027 MFP

Despite all the open dialogues and consultative procedures, in which it seems that any good idea from citizens may have the chance to be reflected in the Commission's legislative proposals, the truth is that, when one looks closely, the script is much more pre-established than it seems, at least for the major issues that make up the policy architecture.

For our purposes, for those of the new MFF, the script began to be written as soon as the future commissioners were nominated. Thus, the letter of mission, dated September 17, 2024, of Piotr Serafin, who is already Commissioner for Budget, Anti-Fraud and Public Administration, contained what will probably be the three main pillars of the new MFF: the single country plan, linked to a reform agenda, the Competitiveness Fund and a reform of the financing of external action to meet the strategic interests of the Union.

The following documents presented by the European Commission have followed this script, from the "Compass for EU Competitiveness" of January 29 to "The Road to the new Multiannual Financial Framework" of February 11, the latter being more explicit, although, in essence, taking up the content of the Commissioner's mission letter.

In spite of the communiqués from the European agricultural and cooperative organizations and the calls from some capitals in the same sense, against the inclusion of the CAP in a single plan and in favor of a "strong" budget for this policy, according to what transpires through the specialized media in Brussels, the Commission continues to stick to its original script, that is, a single plan per Member State, in which the Cohesion policy and the CAP would be included. Regarding the CAP budget itself, rumors speak of a cut, or even, more explicitly, of a double-digit cut ("at least 15 %", according to some media), with the possibility of relocating the agricultural reserve outside the CAP heading, together with the funds of other related instruments.

Therefore, unless there is a last-minute change, the Commission will stick to its original script, marked by the need to offer a boost to the European project, inspired by the diagnosis and recommendations of the Draghi Report, to prevent the EU from losing its position on the global economic and political power scene. This is not a minor aspect. In 2000, the EU accounted for 25% of world GDP, while in 2025 it is 17%, in a process that, if not reversed, may lead us to turn the continent into a theme park. It is difficult to believe that the revulsive will come from increasing the CAP subsidies chapter. To quote Von der Layen, "the time for illusions is over".

In any case, no one is questioning the continuity of the CAP and direct payments. The Commission and the Commissioner have been clear that they will propose an evolutionary and non-disruptive scenario.

The importance of the first proposal. An example of the negotiation of the MFF 2021 - 2027

As we have indicated, the European Commission presented the initial proposal for the MFF 2021 - 2027, on May 2, 2018. It took just over two years before an agreement could be reached at the European Council in July 2020. In between, two major events took place: the European Parliament elections in May 2019, which brought the negotiation process to a halt and, above all, in March 2020, worldwide confinements were decreed due to the Covid pandemic.

Of course, Covid and its consequences radically changed the course of the negotiations. A recovery plan for the EU needed to be put in place as a matter of urgency, so the heads of state and government agreed to create the Next Generation EU recovery instrument, with an endowment of no less than €750 billion, financed by debt issued for the first time by the European Union. 

In any case, experience shows the importance of the first proposal and particularly, the initial budget figures. It is very unlikely that, during the negotiations, the structure of the headings presented by the European Commission will be modified. It is also very unlikely that the figures initially budgeted will undergo significant changes. 

Let's look at what happened in the MFF 2021 - 2027. In the Commission's initial proposal, the CAP budget amounted to 324,284 million € (constant 2018 prices), which meant a reduction of 15.3 % compared to the previous financial framework (in rural development, the reduction was 19.5 %). In the end, it was possible to reduce the final percentage of reduction to 10.2 %. In fact, during the process there were increases, but also decreases in the initial figures, but there were never miracles.
 

The EAGF figure for the MFF 2021 - 2027 agreed in July 2020, in current prices, of 291,091 million euros would be broken down as follows:

Of the figure of 270,044 million euros of direct payments, 12.6% would correspond to Spain, i.e. 34,124.2 million euros for the period 2021 - 2027. 

This will be our first starting point to compare with the proposal for the new MFF to be presented on July 16, although some calculations will have to be made, as in the Commission's initial proposal, most likely, the figure to be presented will be the one corresponding to the EAGF. From this figure, subtracting the market measures (and considering the assigned revenue) we will be able to deduce the proposal for direct payments for the EU before external convergence. From this figure, using Spain's share of direct payments (the figure of 12.6% will be quite approximate), we will be able to know, quite precisely, the figure that corresponds to Spain in the main CAP expenditure chapter. 

Confluence of priorities once the proposal has been submitted

Once the new MFF is presented on July 16, the possibilities of improving the figures for the CAP will be very limited because, from that moment on, for each Member state, all the strategic priorities come together and the countries must choose which of them to fight for, and the range is very wide. Starting with defense spending, energy, and industry, which are now the major political issues, not forgetting the repayment of the debt issued in response to Covid through the Next Generation funds. All these priorities will compete fiercely with the major expenditure items, Cohesion and CAP, especially if there is no appreciable increase in the size of the budget, now set at 1% of GDP.

Traditionally, several families of Member states were formed in the Council according to their priorities. The most classic were the "friends of austerity" and the "friends of cohesion". The former, at the time led by the United Kingdom, grouped together the countries of central and northern Europe, including Germany, whose aim was to limit the size of the budget and, with it, the size of common policies. The "Friends of Cohesion" grouped together mainly the new Member States from the East of the European Union, Spain and Portugal. 

There was never a family of "CAP friends" as such. Just Spain, France, Portugal and Ireland. In fact, whether the CAP will continue to have the weight it has in the Community budget depends almost entirely on France continuing to support it, as it has done so far, consistently in all negotiating forums. 

However, everything is different now. Donald Trump's drift and Russia's invasion of Ukraine have completely changed the order of priorities in the European Union, which can no longer rely on the defense of the former or the cheap energy of the latter.

What is contained in the MFF on the CAP is the first chapter of the reform

The MFF contains the figures that define the budget, but also the main policy lines on the basis of which the regulations of the future CAP are drafted. 

Someone may wonder what the difference is between some aspects of the CAP being decided in the MFF and others in the negotiation of the CAP reform itself. Well, the answer is clear: the MFF is decided by the Heads of State and Government and the CAP by the Ministers of Agriculture. And they are not the same thing. The former, the "chiefs", when deciding, must consider many other priorities in addition to the CAP. The latter do not usually agree on the CAP until the "chiefs" agree on the MFF.

Going back to the MFF and taking as a reference the Council Conclusions document of June 17 - 21, 2020, the CAP decisions that will be part of the MFF legislative package may be:

Main elements to be decided in the negotiation of the MFF directly related to the CAP

1. Structure and name of the budget headings. In the MFF 2021 - 2027, the CAP was included in Heading 3, under the name "Natural resources and environment", which also includes the European Maritime and Fisheries Fund, which finances the Common Fisheries Policy, the environment and climate action program LIFE and the Just Transition Fund. One of the most important aspects of the post-2027 MFF will be to check the new budget structure, in which heading the CAP is included and whether CAP instruments (agricultural reserve for crisis situations) are included in other headings.

2. The budget or commitment appropriations for the CAP. It will be very important that the CAP appears with a specific and differentiated budget and that the budget that is finally agreed upon appears in the basic act of the MFF, as has been the case up to now. The level of breakdown of the figures presented will also be important. It is quite possible that the budget of the complete heading will be presented broken down by funds, EAGF and EAFRD (if they are kept separate), at constant prices (surely referring to the year 2025) and at current prices. It would be interesting to include the figure for direct payments, so as not to have to deduct it, since it represents the largest expenditure chapter.

3. In the MFF 2021 - 2027, the new delivery model was established under a single programming instrument, the CAP Strategic Plan. The proposal for the new MFF will have to define whether the CAP strategic plan continue as a stand-alone plan or whether it is integrated into a broader plan together with other funds.

4. In the MFF 2021 - 2027, the percentage of CAP expenditure earmarked for climate action (40%) was established. It will be important to see whether this figure is maintained or modified. It will be very difficult to justify an increase in this figure if it is not accompanied by an increase in the budget. 

5. Whether or not to maintain the two-pillar structure of the CAP, and whether to maintain the 100% financing by the EU, in the case of the EAGF, and co-financed by the Member states, in the case of the EAFRD. In the MFF 2021 - 2027 it was also indicated that the First Pillar would have a new environmental architecture. This would be the place, for example, to indicate if there are any changes affecting the relationship between Conditionality and eco-schemes.

6. Criteria are set for external convergence, to approximate the amounts per hectare of Pillar 1 direct payments between Member States. This is one of the most politically sensitive aspects. The Eastern EU countries will demand, not without reason, that their ratio of direct payments per hectare should at least be equal to the EU average. They have already been trying for three negotiations and with the burden of having to bear the proximity of the war to their borders, it is quite possible that this time they will succeed. 

   In the MFF 2021 - 2027 those Member States whose aid per hectare ratio was below 90% of the EU average, increased to 50% of the difference, so that, at the beginning of the period no Member State started with a ratio below 200 €/ha and at the end of the period they will reach a minimum of 215 €/ha, with all Member States contributing to finance the increases and not only those below the average.

7. Aid for those who need it most. This will also be one of the strong chapters of the MFF and the CAP. In the current CAP, the limitation of payments or "capping" was established, on a voluntary basis in the MFF, at €100,000 for the receipt of direct payments in the First Pillar (basic income support). It is quite possible that, on this occasion, not only will the limit be maintained, but it will also be mandatory, since very few Member States implemented it. The Vision for the Future of Agriculture and Food points in this direction, when it indicates that "greater use of measures such as degressivity and capping of payments will be considered". In addition, considering a possible future incorporation of Ukraine into the CAP, it would be a more than desirable step to prevent huge agro-industrial conglomerates from receiving direct payments.

8. Establishment of an Agricultural Reserve or similar instrument and its budget to deal with crisis situations. The MFF 2021 - 2027 established the Agricultural Reserve of €450 million (and the financial discipline mechanism). It remains to be seen whether this reserve will remain independent or whether it will be integrated into an instrument of a similar nature under another heading.

9. Transfers of funds between pillars, i.e. between EAGF and EAFRD and vice versa. MFF 2021 - 2027 established the possibility for Member States to make budget transfers, up to 25%, from the First to the Second Pillar and vice versa, with the possibility of increasing it under certain circumstances. We understand that this possibility will continue, although it has hardly been used in Spain in the past.

10. EAFRD prefinancing rates. These rates (1% for each of the first three years) determine the pre-financing advance that the European Commission transfers to the Member States at the beginning of the programming period. 

11. The MFF also establishes EAFRD co-financing rates, i.e. the percentage of rural development expenditure that is financed from the EU budget (currently ranging from a minimum of 43% to 85% in regions considered less developed). 

I do not want to leave POSEI unmentioned. In the MFF we struggled to maintain the POSEI budget, due to the general reduction applied to the budget of the First Pillar. This time, from the outset, countries with peripheral regions, including Spain for the Canary Islands, must ensure that the proposal excludes any reduction in the budget for these regions.

The budget "for those who need it most"

If things are looking the way they seem, i.e. that we are in a scenario of freezing or, more likely, reducing the CAP budget, the slogan that the Commission has been repeating since the beginning of its new mandate becomes even more important: to allocate CAP funds to those who "need it most". Based on this principle, if the aim is to target CAP funds to those who need it most, it is because, at present, beneficiaries may be receiving aid who do not need it that much.

José María Sumpsi recently wrote a very interesting article for Plataforma Tierra, in which he explained, much better than I can, how there are beneficiaries who, due to their economies of scale, do not need or need less support, and also how there are beneficiaries whose economic size does not meet the minimum threshold to be considered "actively participating in food production", as stated in the Vision for the Future of Food and Agriculture.

It is true that there is room for improving the efficiency of payments and concentrating them on those who truly represent professional agriculture. But I also recognize that, politically speaking, it is a bitter pill to swallow to decide that certain It is true that there is room for improving the efficiency of payments and concentrating them on those who truly represent professional agriculture. But I also recognize that, politically speaking, it is a bitter pill to swallow to decide that certain segments of beneficiaries will no longer receive payments, especially in the case of the tens of thousands, or even a few hundred thousand, of small recipients who, for the most part, are the result of hereditary rights and whose agricultural activity is only a small supplement to other incomes. 

In any case, subsidies should not be everything when it comes to taking stock. 

In this respect, I quote again the "Vision" document where it indicates that " when defining the different measures to achieve a fair standard of living, we must draw on all sources of income: market revenues, public support as well as diversified and new complementary income sources". Therefore, we cannot measure the CAP only from the budget of direct payments or subsidies in general, but from the set of instruments made available to the sector to improve its income, reduce the risks of the activity (both those deriving from market disturbances and those deriving from meteorological conditions) and encourage the incorporation of young and new farmers.

One pillar or two pillars for the CAP and the possibility of separating rural development

Whether the CAP has one or two pillars is something that should matter little to beneficiaries. In practice, when we talk about merging both pillars, we would be talking about uniting the EAGF and the EAFRD into a single fund. As we shall see, this is not dramatic either, if the rules of financing by measures are maintained, i.e. EAGF measures are financed 100% by the EU budget and EAFRD measures continue to be co-financed by the Member States.

But first, who cares? I have always been surprised by the interest we civil servants have in explaining the financial structure of the CAP. What matters to the beneficiary is to know the menu of schemes available, when they can apply, what requirements must be met and what the payment schedule is; the financial mix behind it is a matter for the administration, whose role should be to solve it without the beneficiary perceiving how more or less complicated it may be; for that, among other things, the administration exists.

On the other hand, since the last reform, with the implementation of the CAP strategic plans, single plans per Member State, which group all the measures of both pillars, in practice, both pillars are already jointly managed under the same authority. The difference is the financial management of the measures, since some are annual and financed 100% by the EU budget and others are multiannual and are co-financed with the budget of the State and the Autonomous Communities. But this, I repeat, is something that, for the final beneficiary, should be transparent. 

Another issue is the need to reorder overlapping measures in both pillars, but this is an analysis for another occasion.

Another possibility that appears in the discussions would be to leave the First Pillar of the CAP as a singular fund outside the single plan per Member State in which all the other funds would be integrated, including the EAFRD, i.e. rural development. Of course, if this happens, it would be a great loss for the CAP, especially after the high degree of EAGF-FEADER synergy achieved in this period. The EAFRD outside the CAP would be diluted in other funds and would certainly end up attending, with its scarce resources, needs related to the rural environment in its broadest sense (demographic challenge in Spain), which now do not have specific funding.

The importance of the EAFRD in the negotiation and France for the "hat-trick"

A little-known aspect of the MFF negotiations is the role played by EAFRD allocations to enable the Council presidency to make last minute "gifts" to certain countries and facilitate reaching an agreement. In this way, the Member States arrange their CAP matters, especially those for whom this chapter is important. This has been the operational mechanics, at least in the last two financial frameworks of which I am aware. 

When the time comes, in the last Council, when the countries must choose what they want to close the agreement, the Council presidency presents a proposal for the EAFRD increase in which part or all of it is left unallocated by Member States, to negotiate bilaterally. Nobody knows what others are asking for until it is all over, only the Council presidency knows. 

This was the case at the European Council of February 8, 2013, where the agreement on the MFF 2013 - 2020 was reached, as stated in paragraph 72 of the conclusions document. The President, then Herman Van Rompuy, left himself €5.55 bilion, with which he distributed gifts to 16 Member States, including Spain, which was able to obtain €600 million. However, France took €1 billion and Italy €1.6 billion, with no clear objective criteria to explain the differences between them. The Italian case could be explained by the fact that it is the country most affected by external convergence, but in the case of France it must be considered a gift in every sense of the word.

In 2020, in this case, Charles Michel, Chairman of the Board, repeated the same move. He left himself €5.35 billion to negotiate last-minute "gifts". Spain, in this case, €500 million. In the case of France, again, a disproportionate gift of €1.6 billion, more than twice as much as the next, Germany, with €650 million, with no objective criteria to explain such a triumph for our neighbor. With such an amount, Paris did not have to do a lot of math to make a positive balance of the negotiation.

I remember having warned the Spanish 2020 negotiating team that, at the last moment, the President of the Council would pull out of his sleeve the trick of the EAFRD gifts. That is why I am writing these lines, so that in the following negotiations we are clear that this can happen, that we go prepared and, above all, so that France does not make this time "hat trick", which could be.

The single plan and internal governance

Just as we talked before about whether there should be one pillar or two pillars for the CAP, I feel the same about whether there should be a single plan for each Member State that encompasses all the funds. 

The internal governance of the programming of the funds should be transparent for the beneficiaries. A single plan, bringing together all the funds, has, like everything else, its advantages and disadvantages. The advantages have been sufficiently described by the President of the European Commission, to be able to act more quickly in the face of the challenges of a rapidly changing world. 

The drawbacks have to do, above all, with the administrative miseries of our country, which everyone has. In our case, with the "Spanish hell", that is, the weak governance of interministerial coordination (something that is not new, but that we have been dragging for a long time), slow and cumbersome, with multitude of intermediaries. But, with political will, this is solvable and, again, it should be transparent for the beneficiary.

And then a more objective analysis: is it worth integrating the CAP into the single plan? The answer is described much better than I can do by Alan Mattews in a recently published article, in which, in summary, he questions the value of integrating the CAP, whose main expenditure is direct aid to farmers, on an annual basis, with other funds whose purpose is to finance multi-year investments. 

Furthermore, Mattews points out, CAP funds are and must be pre-allocated by Member States from the outset, since farmers cannot be left with the uncertainty that the destination of the funds may suddenly change to meet other unforeseen needs or that their payments may be stopped because the Member State does not respect, for example, the “rule of law,” for political reasons unrelated to the agricultural sector.

We will continue

This long appetizer will serve to provide the necessary background for all of you who wish to follow the evolution of the post-2027 MFF negotiations in the coming months, so that, together, we can build an analysis as objective as possible of its proposals and, in relation to them, those of the reform of the Common Agricultural Policy (CAP) itself.

The sources of the data shown are: General Secretariat of the Council document WK 5978/2018 Rev, comparing, in current and constant prices, the figures for the MFF 2014 - 2020 and 2021 - 2027. Conclusions of the European Council of 17-21. The sources of the data shown are: General Secretariat of the Council document WK 5978/2018 Rev, comparing, in current and constant prices, the figures for the MFF 2014 - 2020 and 2021 - 2027. Conclusions of the European Council of 17-21 July 2020. Commission Staff Working Document, Fiche No. 85, dated September 8, 2020.